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S&P upgrades U.S. outlook, but investors on Wall Street yawn
NEW YORK (AP) — The Standard & Poor’s ratings agency said Monday it’s getting more optimistic about the U.S. economy — but investors just yawned.
Stocks edged up when trading opened, shortly after the S&P agency raised its outlook for the U.S. government’s debt rating and predicted an improving economy. But the gains proved both modest and fickle, and the market spent most of the day flitting between small gains and losses.
At midafternoon, the major stock indexes were split, with two rising slightly and one edging down.
The importance of S&P’s opinion on the U.S. economy harkens back to August 2011, when the S&P Ratings Service downgraded its rating on the U.S. government’s long-term credit because Congress was in a heated battle over whether to raise government spending limits.
The downgrade, an embarrassment to the U.S., also sent the stock market into a tailspin. The Dow Jones Industrial Average plunged 634 points, or more than 5 percent, on the first trading day after the downgrade. The market suffered through big triple-digit swings for the rest of the fall.
On Monday, S&P upgraded its outlook on the U.S. debt rating to “stable” from “negative,” citing “the strengths of the U.S. economy,” including the Federal Reserve’s willingness to support growth by keeping interest rates low and buying bonds. S&P also noted approvingly that Congress had agreed to raise some taxes this year, notably the Social Security tax that most workers pay, which has helped shrink the government’s budget deficit.
But the reaction from investors Monday hardly mimicked their reaction two summers ago. Some doubted the S&P’s assessment that the economy is improving and said the Fed is only artificially propping it up. The Fed hopes that low interest rates will encourage borrowing and spending, and it hopes that by buying bonds, it can influence investors to buy stocks instead.
Ed Butowsky, managing partner of Chapwood Investments in Dallas, said the unemployment rate is still too high, economic growth too weak and the government’s budget deficit still too heavy for the economy to be considered healthy.
“It defies economic logic as to why the S&P did this,” Mr. Butowsky said. “We continue to print money; we continue to spend money. What are they looking at?”
Others agreed with the S&P’s assessment but said it was old news.
Jerry Webman, chief economist at OppenheimerFunds in New York, thinks the economy is strong enough to drive sustainable earnings growth, but not so strong that the Fed might pull the plug on its stimulus measures. Still, he thinks investors shouldn’t draw too many conclusions from a single S&P report.
“On the question of what’s moving the U.S. stock market,” Mr. Webman said, “the answer is ‘Not much.’”
On a day short on U.S. economic news, the S&P upgrade was the center of traders’ attention. There were no major government reports on the U.S. economy, and no big companies announced earnings.
Shortly after 2:30 p.m. EDT, the Dow was down 11 points at 15,237. The S&P 500 index was down by less than a point at 1,643. The Nasdaq composite index was up five to 3,474.
Outside the U.S., Japan’s Nikkei stock index soared after a report that the world’s No. 3 economy is growing faster than expected, but there were also reminders that the global economy is far from cured. In the Netherlands, the central bank warned that the government needs to cut spending. Courts in Germany are poised to consider whether Germany is legally allowed to bail out struggling European countries as it’s been doing.
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